General Growth Properties, Inc. (GGP)

GGP 
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General Growth Properties (GGP)

Q1 2013 Earnings Call

April 30, 2013 9:00 am ET

Executives

Kevin Berry - Vice President of Investor Relations

Sandeep Lakhmi Mathrani - Chief Executive Officer, Director and Chief Executive Officer of GGPLP

Michael B. Berman - Chief Financial Officer and Executive Vice President of Capital Markets

Analysts

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Christy McElroy - UBS Investment Bank, Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Joshua Patinkin

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Quentin Velleley - Citigroup Inc, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Benjamin Yang - Evercore Partners Inc., Research Division

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the General Growth Properties First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to host for today, Mr. Kevin Berry. Sir, you may begin.

Kevin Berry

Thank you, Ben. Good morning, everyone. Welcome to General Growth Properties First Quarter 2013 Earnings Conference Call hosted by Sandeep Mathrani, Chief Executive Officer; and Michael Berman, Chief Financial Officer.

Certain statements during the call may be deemed forward-looking statements and actual results may differ materially from those indicated due to a variety of risks, uncertainties and other factors. Please refer to our reports filed with SEC for a more detailed discussion. Statements made during this call may include time-sensitive information accurate only as of today, April 30, 2013. We will discuss certain non-GAAP financial measures and have provided a reconciliation of each measure to its comparable GAAP measure. Reconciliations are included in our earnings release and supplemental information package, both filed with the SEC and available on our website.

It's my pleasure to turn the call over to Sandeep and Michael.

Sandeep Lakhmi Mathrani

Thank you, Kevin, and good morning, everyone. I'll begin with the overview of our financial and operating results, our recent activity and then turn the call over to Michael.

On the financial side. Yesterday evening, we reported FFO per share of $0.25 for the first quarter, actually slightly above $0.25, $0.03 higher than this time last year. Total funds from operations increased 13.6% to $252 million. EBITDA reached $496 million or 5.7% above last year. And NOI after property management costs rose to $511 million or 5.8% over last year.

As you know, we've been pruning our non-core assets, whether they are malls, office or [indiscernible] centers. Excluding FFO from sold properties, which accounted for $5.3 million in the prior quarter and essentially nothing in the current quarter, our total per share FFO increased over 16% from the prior quarter. Our same-store NOI, as reported, increased 3.7% over the prior quarter. Important to note that in the current quarter, we had a nonrecurring or onetime tax charge. Excluding this item, our same-store NOI increased 4.9%. These results were primarily driven by NOI growth and interest expense savings and are a testament to the high quality of our portfolio, the positive impact of leasing activity over the past couple of years, strict expense control and continued demand for stable durable cash flows from the lending community.

On the operating metrics side. Our operating metrics continued with a positive trend. The U.S. mall portfolio was 95.8% leased at quarter end a full 2.1% higher than the prior year end. Occupancy, which includes covenants and temp tenants, ended the quarter at 92.5%, an increase of 3.1%. And permanent occupancy was 88.6%, 2.1 -- 2.3% higher than this time last year, partially aided by the decrease in temporary occupancy which decreased 50 basis points to just under 5%.

During the quarter, we converted 58 leases or 150,000 square feet to a permanent basis, more than doubling the rent from $25 a square foot to $58 a square foot. About 40,000 of that will take -- took occupancy in the first quarter, the remainder as the year progresses.

In our supplement on Page 18, we report 4.3 million square feet of leasing activity that has been signed and taking occupancy this year. In addition, there is 2.5 million square feet that has been mutually approved by both landlord and tenant but not yet signed. Taken together and assuming the approved leases are signed, we've leased 6.8 million square feet up to this point. That's about 85% of our goal for the year. It would be interesting to note, of the 6.8 million square feet, 4 million square feet is new leasing. That is 97% of our goal. And 2.8 million square feet is renewals or 75% of our goal, hence, the 85% number.

Based on the continued leasing momentum across the portfolio and given the fact that we've nearly accomplished our 2013 goals, we feel very comfortable with our year-end permanent occupancy target of 92%.

Turning to 2014, we've so far leased about 1.7 million square feet, representing 25% to 30% of our goal for the year. On a suite to suite basis, our signed and approved leases taking occupancy in 2013 encompasses 2.7 million square feet. Initial rents are slightly better than $64 per square foot or about 11% higher than expiring rents. Keep in mind that our reported rent figures are provided on a gross basis, spread between new and expiring rents on just a base rent basis would be higher. We expect our rent spread on a suite to suite basis for 2013 to be in the 8% to 10% range.

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